BU477 Chapter Notes - Chapter 3: Financial Statement, Engagement Letter, Embezzlement
Document Summary
Growth in lawsuits and sizes of awards: growing awareness of responsibilities of pa by users of financial statements. When an auditor makes a mistake its best to see if auditor exercised due care. Audit failure: when auditor issues an inappropriate audit opinion and does not comply with gaas. Law allows people that have received a loss from audit failure to recover all or most of the loss. It"s hard to determine when an auditor has failure due to due care. Business failure: situation where business unable to pay its lenders. Just because auditor didn"t detect a fraud doesn"t mean it"s an audit failure. Audit risk: risk that the auditor will conclude a statement that the financial statements are fairly stated when there instead is a mistake. Expectations gap: gap between public expectations of auditor"s role and auditor"s role per gaas. Auditors have responsibility under common law to fulfill implied or expressed contracts with clients.
